Standard Life’s (SLFPF) Q2 2016 Earnings Call

posted in: Earnings Call, Notes | 0

Keith Skeoch – CEO

A solid quarter

“Growth in assets and inflows from a broad range of customer and clients. We continued to grow our global network, increased our stake in HDFC Life. We’re building out our presence in the advice and intermediary markets in the U.K. through 1825 and the Acquisition of the Elevate platform. Importantly, we also maintained our financial discipline to deliver growth in fee-based revenue, profits and cash flows…In my view, the first half demonstrates that our strategy to build a world-class investment company is delivering.”

The global economic outlook was bad even before the Brexit

“The thing that’s important to note, clouds were already gathering over the global economic outlook before the U.K.’s vote to leave the EU took place. It will take time for the full-effect of the vote to be felt and understood. In my view, it would be rash to extrapolate from the economic and political noise of the last six weeks.”

They expect the high uncertainty and volatility to continue

“What is clear is that the uncertainty that always accompanies economies, markets and public policy is likely to remain elevated. Volatility will continue. It will hit air-pockets will have weeks and even months where markets rise quite strongly. That elevated volatility, some of which is directly attributable to the U.K. vote to leave but also has more to do with political and economic developments around the rest of the world…the slow growth, low inflation, compressed return-environment is being extended as markets and economies absorb the enhanced level of uncertainty and volatility.”

Be ye warned Experts and Elites

“Whether we like it or not, trust in experts and elites is being increasingly challenged and the political debate around the world on the quality and inclusion is intensifying.”

Nuggets of Wisdom

“36 years’ experience in financial markets has taught me that during periods of uncertainty and volatility, and there have been quite a few, that I need to remain focused and retain our strategic discipline.”

 

Luke Savage – CFO

Flows in wholesale channels are significantly impacted by Market sentiments

“And starting with wholesale, we can see our flows turn negative. Now to give context, the PRDM survey for the first quarter stated that this has been the worst period for these wholesale markets in 20 years. The markets where investment decisions are typically made short notice and are largely sentiment driven. So, it’s perhaps not surprising given the economic uncertainty and political uncertainty we’ve seen that investors have been taking risk off the table.”

…while institutional channels of flows are less so affected.

“That was in contrast to our institutional flows where mandates are orders are a function of long-term investment goals, performance and capabilities. Here flows were strong, an particularly into real-estate in terms of asset class and in terms of client diversification of good flows and DB schemes including into ILPS, our Integrated Liability Plus Solution. And as we look forward in institutional, that pipeline remains strong.”

They expect to complete the acquisition Elevate platform soon.

“The Elevate platform has got around £10 billion of assets under administration on it. And it’s been losing close to £20 million a year. But once we’ve integrated it, we expect it to contribute profits close to £20 million, in part from increasing SLI content on the platform. We expect to complete on the transaction in the coming months and to spend little under £100 million in total on the acquisition, integration and restructuring which should take around 24 months to complete.”

The volatility in Q2 worked to their advantage

“As for our spread risk margin, we took advantage of volatility and credit spreads during the period to capture additional yield pick-up in the back book and you can see that coming through there at £10 million.”

Take reported solvency ratios with a pinch of salt

“…I don’t believe you can take comfort from reported regulatory solvency ratios they’re just too many anomalies that go into the number to make peer-to-peer comparisons effective…what is important is the absolute quantum of the capital surplus and how stable that is under a range of scenarios”

They consider cash as king

“…regulatory capital is not a constraint on us, so what do we measure ourselves against. It has been, and it remains cash. It is cash that funds’ investments, be that organic or inorganic. And its cash that underpins our ability to stand behind our progressive dividend policy. The fee-based nature of our business provides a strong correlation between fees, IFRS profits and cash generation which you can see here is 10% year-on-year. And that is a conservative measure.”